148 /143(2) /144 of IT Act


17 September 2009

Respected Sirs ,
One of my clients rcd show cause u/s 271(1)b of the act , after rcving we realised that notice was served u/s 143(2) on the wrong address and returned back . since notice was not served in limitation period at the right address , we didnt attend scrutiny proceedings , assessee filed affidavit stating no notice has been received . AO says he will issue show cause u/s 148 . my question is ...can a show cause be issued u/s 148 , when initiation ( by issuing a notice ) of proceedings is commenced u/s 143(2) . can he start 148 before completing 143(3) . His issue is he cant complete 143(3) cos we have challenged his notice and not attending . i told him 144 is a better choice by taking us as assesse in default . Any advices ?

Late CA Sampat Jain (Expert)
18 September 2009

once the notice u/s 143(2) not served in time and AO is satisfied on that he may drop the proceedings u/s 143(2),because the order if passed u/s 143(3)/144 in pursuance of invalid 143(2) will be also be invalid.

thereafter if he wants to proceed u/s 148 he must first satisfy the conditions of issuing 148.

some of the cases are as follows:

Reason to believe’

Belief should not be arbitrary or irrational but based on relevant and material reasons - The important words under section 147 are ‘has reason to believe’ and these words are stronger than the words ‘is satisfied’. The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court cannot of course investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147 - Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 (SC); ITO v. Nawab Mir Barkat Ali Khan Bahadur [1974] 97 ITR 239 (SC)/Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC).

Belief must be in good faith, and cannot merely be a pretence - The expression ‘reason to believe’ does not mean a purely subjective satisfaction on the part of the ITO. The belief must be held in good faith; it cannot merely be a pretence - S. Narayanappa v. CIT [1967] 63 ITR 219 (SC).

Suspicion, gossip or rumour should not form the basis - The words ‘reason to believe’ suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds, and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section - Sheo Nath Singh v. AAC [1971] 82 ITR 147 (SC).

Extraneous and irrelevant material should not be basis for conclusion - There should be some direct nexus between the conclusion of fact arrived at by the authority concerned and the primary facts upon which that conclusion is based. The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact - CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC); ITO v. Lakshmani Mewal Das [1976] 103 ITR 437 (SC).

Others - Where Assessing Officer has issued notice under section 148 for re-opening assessment on basis of a decision of Supreme Court, validity of notice cannot be affected merely because, subsequently, Supreme Court has taken a different view - Punjab State Co-op. Supply & Marketing Federation Ltd. v. Jt. CIT [2009] 178 Taxman 165 (Punj. & Har.).

Requirement of section 147 is fulfilled if Assessing Officer can legitimately form an opinion that income chargeable to tax has escaped assessment and for forming such an opinion, any relevant material including an order of Transfer Pricing Officer passed under section 92CA(3) can be considered - Coca Cola India Inc. v. ACIT [2009] 177 Taxman 103/309 ITR 194 (Punj. & Har.).

Ratan Sharma (Expert)
18 September 2009

You are correct. Notice u/s. 147 can not be issued untill and unless the 143(3) is completed. Even if you are in appeal, the AO should complete the assessment. If you are not attending the proceedings he can assess the income u/s. 144. But no 147 can be given. Notice issued for reassessment will be illegal and invalid as the proceeding for original assessment is still open.

Rajeev (Querist)
19 September 2009

Respected Sampat Jain Ji ,

Can u pls tell me how are proceedings dropped ? Is there any provision to drop the proceedings ? As per my belief , an initiation to an assessment proceeding can only be completed by passing an order of assessment. Pls do correct me , if i am wrong .

Rajeev (Querist)
19 September 2009

Respected Ratan Sharma Ji ,

Can he contend that once acknowledgment of return filed is stamped and acknowledged , its deemed assessment u/s 143(1)a and reassessment can be done ?

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